Another suit regarding a series of pension risk transfers has been filed, alleging a fiduciary breach in not obtaining the “safest annuity available.”
The latest—filed on behalf of plaintiffs Martha Brennan Camire, Craig Jefferson, David Lyn Shepherd, and Daniel Schipper (individually and as representatives of a class of similarly situated participants and beneficiaries of the Pension Plan for Certain Salaried Employees of Alcoa USA Corporation, Pension Plan for Certain Hourly Employees of Alcoa USA Corporation and the Alcoa Subsidiaries Merged Inactive Plan) by the law firm of Schlichter Bogard LLP—charges a series of Alcoa defendants and Fiduciary Counselors, Inc. for “breach of fiduciary duties and other violations of the Employee Retirement Income Security Act of 1974.”
Similar suits have been filed against Lockheed-Martin and AT&T by Schlichter Bogard LLP as well, and a separate suit alleging similar points filed against AT&T on behalf of different participant-plaintiffs by a different law firm.
Offloaded Obligations?
This suit alleges that “through four separate transactions completed between 2018 and 2022, Defendants offloaded over $2 billion of Alcoa’s pension obligations, which affected over 28,000 Alcoa retirees and their beneficiaries.” It goes on to note that “defendants offloaded these obligations to Athene Annuity and Life Co. or Athene Annuity & Life Assurance Company of New York, a private equity-controlled insurance company with a highly risky offshore structure.”
“As a result of these transactions,” the suit claims, “Plaintiffs and the similarly situated participants and their beneficiaries lost their status as ‘participants’ in the ERISA-governed Plans, and therefore, are no longer subject to ERISA’s protections for employee retirement benefits.” The suit acknowledges that while ERISA “does not prohibit an employer from transferring pension obligations to an insurance company, ERISA requires that a fiduciary obtain the ‘safest annuity available.’”
“Rather than selecting the safest possible annuity to ensure the continued financial security for Alcoa retirees and their beneficiaries, Defendants selected Athene, a substantially riskier insurer than numerous other traditional annuity providers,” the suit continues. “Annuities provided by Athene are structured to generate potentially higher expected returns. Athene invests in lower-quality, higher-risk assets without the traditional mix of quality assets to support future benefit obligations, posing a significant risk at a great cost to retirees. Because the market accounts for such risk when pricing investments, it is likely that Alcoa Defendants saved a substantial amount of money by selecting a group annuity contract from Athene over the safest annuity available.”
‘Devalued Pensions?’
Ultimately, “in transferring Plaintiffs’ pension benefits to Athene, Defendants put Alcoa’s retirees’ and their beneficiaries’ future retirement benefits at substantial risk of default—a risk which devalued their pensions without proper compensation. Accordingly, in addition to other remedies, Plaintiffs seek to receive the monetary value of the additional risk of their annuity as demonstrated by the marketplace.”
For those unfamiliar with the terms/process, the suit notes that “in a PRT transaction, an employer offloads all or part of its pension benefit obligations by purchasing group annuity contracts with plan assets from an insurer, who then assumes the responsibility of future benefit payments to employees and retirees covered by the transaction.” The suit goes on to assert that a plan sponsor’s selection of an annuity provider to whom it transfers its pension obligations is a fiduciary function (there are differences of opinion on that point)—one that “will have a lasting impact on retirees and their beneficiaries for the rest of their lives.”
The suit posits as its basis IB 95-1, issued by the Department of Labor in 1995 (in the wake of the Executive Life collapse), that outlines the fiduciary standards to be used in selecting an annuity provider for a pension risk transfer. That includes considerations of the provider’s investment portfolio, size relative to the annuity contract, level of capital and surplus, liability exposure and availability of state government guaranty associations.
The SECURE 2.0 Act of 2022 required the DOL to review IB 95-1 and recommend possible modifications to Congress by the end of 2023—but that hasn’t happened yet.
Stay tuned.
NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.
